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Petitioners further contend that they lacked fraudulent
intent because they believed any cash they received from Cedar
Hill in excess of Mr. Parsons’ reported salary constituted
repayment of loans owed to Mr. Parsons by the corporation.
Although on January 31, 1987, Cedar Hill owed Mr. Parsons
$54,892, by February 28, 1987, the value of the loans had been
reduced to $3,067. This reduction resulted from SMR’s decision
to recharacterize amounts recorded as debt as paid-in capital in
order to preclude petitioners’ having imputed interest income in
respect of these amounts. Petitioners assert that they were
never informed of the elimination of this indebtedness.
We do not find petitioners’ “loan repayment” rationale
convincing. Regardless of whether petitioners had been advised
of their accountant’s recharacterization of the loan amounts as
paid-in capital, their rationale that the cash Mr. Parsons took
constituted loan repayments fails because there was no way for
their accountant to keep track of the purported “repayments” by
Cedar Hill. Only if one accepts that Mrs. Parsons’ checking
account was intended to provide a means for SMR to compile Mr.
Parsons’ removals of cash-–which, for the reasons previously
stated, we do not-–could SMR have any conceivable way of keeping
track of Cedar Hill’s outstanding indebtedness to Mr. Parsons as
he “paid himself back” with diverted cash.
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